Finance Ministry steps in to control formula milk prices

Updated: 16:43’ - 03/07/2014

The Ministry of Finance has set ceiling prices on 25 milk products for children below the age of six in a move to contain constant price hikes on the dairy market.

Under its Decision 1079 effective this month, the Ministry of Finance caps the wholesale prices of milk products of five largest dairy producers and traders, namely Vinamilk, Nestle Vietnam, Mead Johnson Vietnam, FrieslandCampina Vietnam and Abbott distributor - 3A Nutrition Vietnam, which hold around 90 percent of the market share of dairy products for children under six.

The price caps set for these products are 10-15 percent lower than their current wholesale prices and in some cases, 20 percent lower than the market rates.

Milk producers and distributors are required to refer to the price ceilings and pricing regulations to determine prices of other milk products and new ones on the domestic market and send them to relevant authorities.

Retailers may set the retail prices of these products by adding related costs to the highest wholesale prices under the guidance of pricing authorities, which, however, must not be 15 percent higher than the wholesale ceilings.

In addition, they must register the highest retail prices with pricing authorities for control.

For instance, a 900-gram tin of Dielac Alpha 123 is now capped at VND 167,000, and Vinamilk will have to distribute it to wholesalers at VND 165,000. Under the new regulation, retailers must sell the product at maximum VND 189,000 while it currently fetches over VND 200,000.

The new regulation says that the ceiling price-based management of milk products will be in force for 12 months and the price registration measure will last six months, starting from June 1.

The Ministry of Finance’s decision to tighten control over milk prices followed its inspection of the five top milk producers and traders which had reported steady price hikes from one year to another despite the Ministry’s strict regulations to control milk prices.

Conducted in April, the inspection revealed that these milk businesses had steadily increased sale prices and made colossal profits, mounting to 20-30 percent last year.

The inspection found that the five firms last year hiked prices from 2.4 percent to as high as 30.7 percent, with two of them additionally raising prices by 5-14 percent in the first three months of this year. The price hike was prompted even though the Ministry of Finance had asked dairy firms to cut costs to lower sale prices and the Ministry of Health issued Circular 30, which put milk for kids below six under price valorization.

Imported formulas were also sold at three or four times their import prices since companies were paying doctors to recommend their products to pregnant women at medical conferences, the Thanh Nien (Young People) online reported.

Nghia said the imposition of price caps was lawful, citing the Pricing Law which allowed the Government to assign the Ministry of Finance to valorize prices upon market fluctuations.

He stressed the Ministry had taken into account import prices, import duty, value-added tax and other expenses while capping milk prices, ensuring the interests of both consumers and businesses and the State as well.

Nguyen Anh Tuan, director of the Price Management Department, also told the Tuoi Tre that the price ceilings were based on three grounds: the results of inspection at five dairy firms, price developments of the dairy market and prices of similar products on regional markets.

He affirmed that the Ministry had reckoned reasonable profits when setting wholesale price ceilings, saying retailers should also cut costs to make profits as the retail prices now must be not 15 percent higher than the wholesale ceilings.

Experts, however, showed doubts about the effect of the new regulation, saying this was merely an administrative measure.

Pricing specialist Vu Vinh Phu said imposition of price ceilings was necessary, but was not a basic measure to stabilize the market.

In fact, dairy firms have managed to evade the new law such as stopping selling products on the capped list, launching new products with new labels but similar ingredients at much higher prices, and reducing weights of products.

Phu said it was important to reorganize production and dealer networks, suggesting to adopt incentives for domestic firms to produce powder milk for children and organize effective distribution chains from producers right to retailers to reduce intermediaries.

He stressed the importance to control cost prices, paying special attention to milk importers, as well as close coordination among customs, tax, foreign trade and pricing authorities to ensure reasonable milk prices beneficial to both consumers and producers.- (VLLF)